Reverse Mortgage
Convert Your Home Equity Into Tax-Free Cash
A reverse mortgage is a loan designed for homeowners aged 62 and older who want to access the equity they’ve built, without selling their home or taking on monthly payments. Because you’re borrowing against your own equity, the funds you receive are not considered taxable income. You stay in your home, you keep the title, and repayment happens only when you permanently leave.
The most common version is the Home Equity Conversion Mortgage (HECM), which the federal government insures through the FHA. So if you’ve been wondering whether a reverse mortgage is a real option or just a product pitched in late-night commercials, the answer depends on your situation. This page explains how it actually works.
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Loan breakdown
Based on 2026 HUD HECM parameters.
How a Reverse Mortgage Works
A reverse mortgage flips the cash flow direction of a conventional mortgage. Instead of you making monthly payments to a lender, the lender makes the funds available to you — as a lump sum, a line of credit you can draw from, or recurring monthly payments. You retain the title and continue living in the home. Repayment doesn’t begin until you, and any co-borrower, permanently leave the home.
The Loan Balance Grows Over Time
Because no monthly payment is required, interest and ongoing mortgage insurance accrue and are added to the loan balance each month. The balance grows. This is the most important mechanical fact about reverse mortgages, and it’s what most differentiates them from conventional loans.
A concrete example: a borrower who draws $100,000 today at a 7% effective rate (note rate plus MIP), and never makes a voluntary payment, will see the balance grow to roughly $140,000 in five years, $197,000 in ten years, and $387,000 in twenty years. The growth doesn’t stop until the loan is repaid.
You can make voluntary payments at any time without penalty, and many borrowers do — particularly those using the line of credit, who pay back drawn amounts to keep their available credit high. But you’re never required to.
What Triggers Repayment
The loan becomes due and payable when one of the following happens:
- The last surviving borrower (or eligible non-borrowing spouse) passes away
- The home is sold or the title is transferred
- The borrower permanently moves out, including to a care facility for more than 12 consecutive months
- The borrower fails to meet their ongoing obligations — paying property taxes, maintaining homeowner’s insurance, and keeping the home in reasonable condition
Of these, the first three are the typical triggers. The fourth is what makes property tax and insurance compliance non-negotiable: failing to pay them can put a HECM into default the same way it could trigger foreclosure on a conventional mortgage.
What Heirs Actually Do
When the loan becomes due, heirs have several options. Understanding them in advance often resolves the most common concern about reverse mortgages.
Sell the home and repay the loan from the proceeds. This is the most common path. The home is listed for sale, the loan balance is paid off at closing, and any remaining equity belongs to the heirs.
Keep the home by paying off the loan. If the heirs want to keep the home, they can pay off the reverse mortgage with their own funds or by refinancing into a conventional mortgage in their own name. Importantly, they don’t have to pay the full loan balance if it exceeds the home’s value — they can satisfy the loan by paying 95% of the home’s current appraised value, with FHA insurance covering the difference.
Sign the home over to the lender. If the heirs don’t want the home and don’t want to manage selling it, they can complete a deed-in-lieu of foreclosure and walk away with no further obligation. Because the HECM is non-recourse, neither the heirs nor the estate ever owes more than the home’s value.
Heirs typically have six months to decide and act, with the option to request two 90-day extensions if they’re actively working on a sale or refinance. The lender cannot demand immediate repayment in cash.
1. Lump Sum — Single Payment at Closing
A lump sum HECM delivers your available proceeds in one fixed-rate disbursement at closing. There are no future draws after that — what you take at closing is what you get, period.
The amount available is constrained by HUD’s “60% rule,” which caps the total disbursement in the first 12 months at the greater of 60% of your Principal Limit or your mandatory obligations plus 10% of the Principal Limit. After your closing costs and any existing mortgage payoff are deducted from that cap, what’s left is the cash that hits your account. For a 70-year-old with a $500,000 home and no existing mortgage, that typically works out to roughly $80,000 in cash on a Principal Limit of about $165,000 — meaning a meaningful portion of the loan capacity is permanently off the table.
Pick lump sum when:
- You have a specific, large, one-time financial need — most commonly, paying off an existing forward mortgage to eliminate the monthly payment
- You can articulate exactly what the money is for and when it will be used
- You don’t anticipate needing additional funds from the home in the future
The trade-off:
Interest accrues on the entire balance from day one. If you take more cash than you immediately need, you’re paying interest on idle money. The 60% rule also strands a portion of your borrowing capacity permanently — you can’t come back later for the unused portion the way you can with a line of credit. For most borrowers without a specific one-time need, lump sum is the wrong choice.
2. Line of Credit — Draw as Needed
A HECM line of credit opens at your full Net Principal Limit and lets you draw funds whenever you want, in whatever amount you want. You’re charged interest only on what you’ve drawn, not on the full line. The same 60% rule that caps lump sum withdrawals also limits how much you can draw in cash during the first 12 months — but after year one, that cap is lifted entirely and the full line balance becomes accessible.
The defining feature is what happens to the unused portion: it grows. Every month, the untapped balance compounds at the current note rate plus 0.5% mortgage insurance. With a 7% effective rate, a $146,000 line opened today would have approximately $207,000 of available capacity in five years, $294,000 in ten, and $590,000 in twenty — assuming no draws. (We explain why this happens in the next section.)
Pick line of credit when:
- You want flexibility rather than an immediate cash need
- You’re using the HECM as a strategic retirement planning tool rather than to solve a current cash problem
- You want a financial backstop against unexpected expenses, market downturns, or future long-term care costs
- You’re not sure exactly when or how much you’ll need
The trade-off:
The flexibility cuts both ways. Borrowers without a clear plan can treat the line as found money and drain it on discretionary spending, leaving them with a depleted capacity and a growing loan balance. The line of credit is the option most commonly recommended by retirement researchers — but it works best for borrowers with the discipline to respect what it is.
3. Monthly Payments — Tenure or Term
Monthly payment HECMs convert your available proceeds into a recurring monthly disbursement. Two flavors: tenure pays you for as long as you live in the home, and term pays you a larger amount over a fixed number of years that you choose at closing.
Tenure payments are calculated using a standard annuity formula assuming you’ll live to age 100 — but importantly, payments don’t actually stop at 100. If you live longer, the lender keeps paying. The FHA insurance pool covers the lender’s longevity risk, which is part of what your monthly mortgage insurance premium funds. For a 70-year-old with a $146,000 Net Principal Limit at 7%, tenure works out to roughly $970 per month for life. A 10-year term on the same numbers produces roughly $1,700 per month, but the payments end at year 10.
Pick tenure when:
- You have a recurring monthly income gap — meaning your essential expenses exceed your Social Security, pensions, and sustainable portfolio withdrawals
- You want guaranteed income for as long as you live in the home
- You don’t have other guaranteed lifetime income covering essentials
Pick term when:
- Your income need is time-limited — bridging to delayed Social Security, covering a finite expense, funding a specific multi-year goal
- You’d prefer larger checks for a defined period over smaller checks for life
The trade-off:
Both versions lock you into a specific disbursement structure. You can’t flexibly adjust the payment amount up or down based on changing needs the way you can with a line of credit. If your situation changes mid-loan, modifying the structure typically requires refinancing into a different HECM. For borrowers who want both predictable monthly income and flexibility, HUD also offers “modified tenure” and “modified term” options that combine monthly payments with a smaller line of credit — worth asking about during your consultation.
A Practical Decision Frame
A reasonable way to think through which option fits:
- If you have a specific, one-time bill that the loan will solve permanently — lump sum
- If you have a known monthly income shortfall that will continue indefinitely — tenure
- If you have a known monthly shortfall that will end at a specific future date — term
- Otherwise — if you want flexibility, a safety net, or strategic optionality — line of credit
Most borrowers who walk through this honestly land on the line of credit, which matches what the academic retirement research generally recommends. If you’re not sure where you fit, that’s exactly what the required HUD counseling session is designed to help you work through.
How the Line of Credit Grows — and Why
The growing line of credit is the single most powerful and least understood feature of a HECM. It’s also the feature that confuses most people the first time they hear about it: why would the bank let my available credit get bigger over time?
The short answer: the growth isn’t free money. It’s an accounting representation of interest you haven’t yet owed. The longer answer is worth understanding because it shapes how the line of credit option fits into a long-term retirement plan.
The Mechanics
The unused portion of your line compounds every month at the current note rate plus the 0.5% mortgage insurance premium. With a 6.5% note rate, the growth rate is 7.0% annual, applied monthly. Each month, the lender takes the unused balance and multiplies it by approximately 1.00583. Over five years, a $146,000 line grows to roughly $207,000. Over twenty years, it grows to roughly $590,000. There is no cap on this growth — it does not stop when the line equals the home’s value, and it does not depend on the home appreciating.
This growth isn’t free money — it’s a contractual mechanism that preserves the time value of your borrowing capacity. Consider what would happen if you took the full line as a lump sum at closing: that debt would accrue interest at 7%, growing to roughly $207,000 after five years — exactly the same number the line of credit grows to. HUD designed the growth rate to make you indifferent between drawing now and drawing later. It’s the same money expressed across a different timeline.
What It Means in Practice
Once you understand that the growth is preserved future borrowing capacity, several practical implications follow.
It’s contractual, not market-dependent. A traditional home equity line of credit can be frozen, reduced, or cancelled by the bank if your home value drops or your credit changes — and lenders did exactly that to millions of borrowers during the 2008 financial crisis. A HECM line cannot be. Once it’s open, the growth is guaranteed by the loan terms regardless of what happens to your home value, your credit, or interest rates.
It locks in your borrowing capacity at today’s home value. If you open a $146,000 line at age 62 and your home value declines 30% by age 75, the line is still $146,000 plus all of its accumulated growth. You’ve insulated your access to home equity from future market downturns.
It supports the “standby reverse mortgage” strategy. Some retirement researchers recommend opening a HECM line of credit at the earliest eligible age and treating it as a reserve — drawing from it during market downturns to avoid selling investments at a loss, then replenishing it when markets recover. The growth feature is what makes this work; without it, you’d be no better off than with a conventional HELOC.
One honest caveat: the projections in the calculator assume a constant interest rate. In reality, the growth rate moves with the underlying index — usually the 1-year CMT or 30-day SOFR — plus your lender’s margin. Long-horizon projections should be treated as illustrative, not predictive. Also, the growth applies only to the unused portion. Drawn funds stop accruing as line and start accruing as debt at the same rate — so the growth is real, but it’s not a bonus on top of interest charges.
Program Overview
The HECM is an FHA-insured program with specific eligibility requirements, loan parameters, and borrower protections. Here are the key facts in one place.
About the Financial Assessment
The financial assessment is not the same as a traditional credit approval. Lenders review your history of meeting ongoing housing obligations: property taxes, homeowner’s insurance, and HOA fees if applicable. Since you’re not making monthly payments on the loan itself, the lender needs confidence that you’ll maintain the ongoing costs that keep the home in good standing.
If the assessment raises concerns regarding your ability to cover these costs, a portion of your loan proceeds may be set aside in a “life expectancy set-aside” (LESA) account to cover those expenses automatically on your behalf.
About the HUD Counseling Session
The required counseling session is one of the steps borrowers worry most about because they don’t know what to expect. The reality is more straightforward than most people imagine.
Sessions are typically 60 to 90 minutes and can be completed by phone or in person, depending on the agency. The cost is usually $125 to $200, though some agencies waive it for borrowers below certain income thresholds. The counselor will walk through the mechanics of the HECM program, the costs involved, your ongoing obligations, alternatives to consider, and the implications for your estate. They’ll often ask questions designed to verify you’ve understood — but it isn’t a test, and there’s nothing to study for.
At the end of the session, you receive a counseling certificate that’s valid for 180 days. Without that certificate, no lender can move forward with your application. The session is required before application, not after, so plan to complete it early in the process.
The counselor is independent. They don’t earn anything from your decision either way. Borrowers sometimes find this single conversation more useful than hours spent reading marketing material from lenders, because the counselor’s only job is to make sure you understand. If you have specific concerns going in, write them down and bring the list. The session is most valuable when it’s used to answer the questions you actually have. You can find a HUD-approved counseling agency through the official HUD website.
Reverse Mortgage Pros and Honest Trade-Offs
A reverse mortgage solves a real problem for many older homeowners who are equity-rich but cash-limited. However, it isn’t a neutral financial tool. The trade-offs matter, and understanding them before you commit is the whole point of this page.
- No required monthly mortgage payments
- Proceeds are generally not considered taxable income
- You retain title and the right to stay in your home
- Non-recourse protection — heirs cannot owe more than the home’s value
- Line of credit grows over time if unused
- FHA insurance backs the HECM program
- Loan balance grows monthly as interest and fees accrue
- Home equity decreases over time, potentially to zero
- Heirs may need to sell the home to repay the loan
- Upfront costs (origination, insurance, closing) can be significant
- You can outlive your available proceeds with the monthly payment option
- Property taxes and insurance must still be paid — or foreclosure is possible
A Closer Look at Reverse Mortgage
Patricia: Using a Line of Credit for Stability
Patricia is 74 and owns her home outright. Her home is worth $520,000. She lives on Social Security and a small pension, but rising healthcare costs have strained her monthly budget.
A HECM line of credit makes sense for her situation. Because she doesn’t need a lump sum, the line of credit lets her draw only what she needs, when she needs it. Her home title stays in her name. No monthly mortgage payment is required. The unused portion of the credit line grows over time, giving her more flexibility as she ages.
Patricia still pays her property taxes and homeowner’s insurance every year. She understands that failing to do so could trigger a default. Her counseling session covered these obligations clearly. So she goes in knowing the full picture, not just the benefits.
Her daughter may inherit less equity than expected. Patricia has had that conversation with her family. For Patricia, staying in her home without financial stress matters more than maximizing the inheritance.
Robert: Using a Lump Sum to Eliminate a Mortgage Payment
Robert is 68 and recently retired. He owns a home worth $475,000 and still carries a $185,000 balance on his original 30-year mortgage at 7.25%. His monthly principal and interest payment is roughly $1,400, and it’s the largest line item in his retirement budget. His combined Social Security and pension income covers his other expenses comfortably, but the mortgage payment makes the budget feel tight every month.
A fixed-rate HECM lump sum is the right tool for his situation. The reverse mortgage proceeds at closing pay off the existing $185,000 balance entirely. From that day forward, Robert no longer has a monthly mortgage payment. The same home, the same title, but without the largest fixed expense in his retirement budget. The cash flow improvement is immediate and permanent.
Robert understood and accepted the trade-off going in. The reverse mortgage balance will grow over time at the prevailing rate plus mortgage insurance, and his home equity will decrease accordingly. His children, who are doing well financially, agreed that maintaining their father’s quality of life matters more than maximizing their eventual inheritance. Robert continues paying his property taxes, homeowner’s insurance, and HOA fees on time, just as he did before.
For Robert, the lump sum was the right choice precisely because he had a specific, one-time use for the funds — eliminating a defined debt obligation. He didn’t take more than he needed. He didn’t have leftover cash sitting idle in a checking account accruing interest on the loan side without earning any on his side. The match between the tool and the problem was clean.
Margaret: Using Tenure Payments to Bridge a Recurring Income Gap
Margaret is 72 and was widowed three years ago. Her home is worth $410,000 and is fully paid off. Her income consists of $1,950 per month from Social Security plus a small survivor’s pension of $400 per month. After tracking her actual expenses for six months, she determined that her essential monthly costs — utilities, food, healthcare, insurance, transportation, and minor home maintenance — total roughly $3,200. The gap is consistent and isn’t going away.
Margaret has $65,000 in savings that she would prefer not to draw down, both as an emergency reserve and because her late husband had wanted some of it preserved for their grandchildren. A HECM with tenure monthly payments lets her close the income gap from her home equity rather than her savings.
Based on her age, home value, and current rates, the tenure calculation produces approximately $850 per month for as long as she remains in the home. Combined with her existing income, she now lands at roughly $3,200 per month — which is exactly her essential expense level. The savings stay intact. The grandchildren’s portion stays preserved.
The HUD counseling session helped Margaret understand the implications she hadn’t initially considered. The home equity available to her estate will decrease over time as the loan balance grows. The non-recourse protection means her family will never owe more than the home’s value, but it also means the home itself is now committed to repaying the loan when she’s gone. Her family had a direct conversation about it. They agreed that her financial stability for the rest of her life mattered more than the size of any future inheritance.
For Margaret, tenure was the right structure because the gap she was solving was permanent, not time-limited. A line of credit would have left her drawing manually each month and watching the balance — adding stress to a situation she wanted to feel settled about. The fixed monthly payment removed the decision-making burden entirely.
Mortgage Calculators & Tools
Estimate your HECM payout, model line-of-credit growth, and run tenure vs. term payment scenarios.
Open the ToolsWhen Another Program Might Fit Better
A reverse mortgage isn’t the right answer for every homeowner who wants to access equity. Several situations call for a different approach.
You’re under 62 or want to preserve equity for heirs: If leaving maximum equity behind matters to you, or if you haven’t yet reached 62, a cash-out refinance may give you access to equity while keeping the loan balance more predictable over time.
You want to move within a few years: Since a reverse mortgage is designed for long-term occupancy, the upfront costs rarely make sense if you plan to sell or relocate in the near term. A shorter-term equity strategy may serve you better.
You’re still under 62 and planning ahead: If you’re researching now for a decision several years out, reviewing our full loan program overview can help you compare options side by side.
You need purchase financing, not a refinance: HECM for Purchase is a real product, but it works differently from the standard reverse mortgage. If you’re buying a new home and want to use a reverse mortgage, ask us specifically about that program.
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Reverse Mortgage FAQs
Yes. You retain title to your home throughout the life of the loan. The lender does not take ownership. However, you must continue meeting your ongoing obligations: property taxes, homeowner’s insurance, and basic home maintenance. If those obligations go unmet, the lender can declare the loan due and payable, which could lead to foreclosure. So ownership comes with responsibility, same as any other mortgage product.
Historically, this scenario caused real harm. If one spouse signed a HECM and the non-borrowing spouse later survived them, the surviving spouse could face foreclosure because the loan became due when the borrowing spouse passed. HUD changed the rules in 2014 to address this directly.
Today, a non-borrowing spouse can be classified as an “Eligible Non-Borrowing Spouse” if they were married to the borrower at closing, are identified as such in the loan documents, and continue to occupy the home as their primary residence. If they meet those conditions when the borrowing spouse passes away, they can remain in the home for the rest of their life under what’s called a “deferral period,” provided they continue meeting the ongoing obligations — property taxes, homeowner’s insurance, and basic maintenance.
They cannot access additional loan proceeds during the deferral period, and the loan balance continues to grow with interest. But they cannot be forced from the home solely because their spouse passed away. This is a significant protection that didn’t exist before 2014, and it’s worth confirming explicitly with your loan officer and counselor if you’re applying as a married couple where only one spouse is age-eligible.
Heirs can sell the home and repay the loan from the proceeds, pay it off and keep the home, or sign it over to the lender with no further obligation. Because the HECM is non-recourse, they will never owe more than the home’s appraised value at the time of sale. See What Heirs Actually Do above for a full breakdown of each path and the typical six-month decision window.
Yes — if you stop paying property taxes, let homeowner’s insurance lapse, or stop using the home as your primary residence. The triggers and what each means practically are covered in What Triggers Repayment above. The required counseling session also walks through each of these obligations before you can apply.
The amount available depends on three primary factors: the age of the youngest borrower, the current expected interest rate, and the appraised value of your home up to the 2026 HECM lending limit of $1,249,125. Older borrowers, lower rates, and higher home values produce larger loan amounts.
For a sense of typical numbers at current rates, before deducting closing costs and any existing mortgage payoff:
- A 65-year-old with a $400,000 home — Principal Limit roughly $123,000
- A 70-year-old with a $500,000 home — Principal Limit roughly $165,000
- A 75-year-old with a $600,000 home — Principal Limit roughly $217,000
- A 80-year-old with a $750,000 home — Principal Limit roughly $307,000
These are rough figures meant to set expectations. After mandatory obligations like the initial mortgage insurance premium, origination fee, and other closing costs, the net proceeds available to the borrower are typically $15,000 to $25,000 less than the Principal Limit shown above.
For your specific situation, use the calculator near the top of this page or contact us for a formal quote. The CFPB’s homeownership resource center also maintains useful background on how reverse mortgage proceeds are calculated and what to watch for.
Yes, but with a condition. If you still carry a balance on your existing mortgage, that balance must be paid off at or before closing on the reverse mortgage. In many cases, the reverse mortgage proceeds cover that payoff. So if the remaining balance is small relative to your home’s value, this is usually straightforward. If the existing balance is large, there may not be enough proceeds remaining to make the reverse mortgage worthwhile. A loan officer can help you model whether the numbers work given your specific equity position. Also, our FHA loan page has additional context on FHA-insured products if you’re comparing approaches.
Reverse Mortgage Disclaimer
This page provides general educational information about reverse mortgage products, including the Home Equity Conversion Mortgage (HECM) program insured by the Federal Housing Administration. No specific interest rate, annual percentage rate, monthly payment amount, loan term, or down payment has been advertised on this page. Therefore, full Regulation Z trigger term disclosures are not required for this content.
HECM loans accrue interest over the life of the loan. Because no monthly mortgage payment is required, interest compounds onto the outstanding balance, which reduces available home equity over time. The unused portion of a HECM line of credit grows at the same rate as the loan’s interest and MIP accrual rate, which may increase available funds over time — but does not increase the home’s value or equity.
HECM loans require an upfront mortgage insurance premium (MIP) of 2% of the appraised value or applicable FHA loan limit, whichever is less, plus an annual MIP of 0.5% of the outstanding loan balance. These costs affect the total amount available to the borrower and are in addition to other closing costs.
HECM loans are non-recourse. Neither the borrower nor their heirs will owe more than the lesser of the outstanding loan balance or 95% of the home’s appraised value at the time of repayment, provided the home is sold to satisfy the debt.
Rates and program terms are subject to change without notice and may vary based on borrower qualifications, property type, loan amount, creditworthiness, and market conditions. Not all applicants will qualify. This page does not constitute a commitment to lend, a loan approval, or an offer of credit. Actual loan terms, interest rates, fees, and available proceeds will be determined at the time of application based on individual circumstances.
Borrowers must meet all program eligibility requirements, including age, residency, financial assessment, and completion of a HUD-approved counseling session. Property taxes, homeowner’s insurance, and HOA fees (if applicable) remain the borrower’s ongoing responsibility throughout the life of the loan. Failure to meet these obligations may result in loan default and potential foreclosure.